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Confidence down as GDP estimate drops

Jan 12 2012 12:44
Reuters

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Johannesburg - Economists were gloomier about South Africa's
economic prospects for this year and next on the back of the eurozone debt
crisis, while inflation was expected to be a bit higher than previous
forecasts, a Reuters poll showed on Thursday.

The December Reuters Econometer showed analysts had cut
their gross deomstic product (GDP) forecasts, with the economy expected to grow
by a median 2.8% in 2012, compared with 3.0% in the previous poll.

The National Treasury expects the economy to grow by 3.1%
this year.

Next year, the poll showed GDP growth was seen at 3.61%,
slightly lower than 3.7% in the November poll.

As a result the Econometer, a confidence gauge based on six
weighted indicators that looks two years ahead, fell to 267.81 in December from
271.25 in November.

"The severity of the global economic slowdown holds the
key to the South African economic outlook in 2012, expecting at best 2.8%
growth," said Elna Moolman, chief South Africa economist at Renaissance
Capital.

South Africa's economic growth came in at a
weaker-than-expected 1.4% in the third quarter of 2011 on a seasonally adjusted
and annualised basis, compared with a 1.3% rise in the second quarter.

Reserve Bank govenor Gill Marcus said in November there was
a risk of stagflation due to the continuing crisis in the eurozone, and the
bank would focus on achieving inflation but remain sensitive to the domestic
economic situation.

The analysts' median forecast was below that of the National
Treasury, which also cut its 2012 growth estimate to 3.4% in October from 4.1%
previously.

Inflation was seen ticking higher, with the poll showing the
consumer price index could average 6.07% this year, just a touch higher than
the previous forecast of 5.97%. Average inflation would then ease to 5.55% in
2013.

There was a slight chance of a repo rate rise to 6.0% by the
end of this year. In November's poll, the consensus was that the repo rate
would remain flat at 5.5% until the end of 2012.

"As demand activity picks up towards the latter part of
the year and there's some certainty about the eurozone crisis, the Reserve Bank
might raise rates," said Citadel economist Salomi Odendaal.

The Reserve Bank left the repo rate unchanged throughout
2011, after cutting it by a cumulative 650 basis points in the two years to
November 2010.

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